A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

October 21, 2007

Ah, ya gotta love the first truly worldwide Ponzi Scheme. Who'd have thunk that Irish people would be losing their shirts in Spain or that Brits would be getting slaughtered in Latvia.

The worldwide credit bubble is over. And people around the globe have seen what's happened in Phoenix and Miami and Boston and San Diego and more and they're pulling out of the scam as fast as they can, at any price.

Lured by unrealistic promises of extraordinary returns, Irish investors borrowed heavily to pick up cheap buy-to-let apartments abroad. But property prices in these so called "hotspots" have begun to plummet in recent months.

Along with rising mortgage rates, the strong euro and dismal rental markets, dark clouds are forming for a so- called "Perfect Storm" that could decimate the investment nest eggs of the househunters in the sun.

About 150,000 Irish investors are thought to have bought properties in Spain. However, the oversupply of apartments in Spain's Costa del Sol has pushed the price of some properties down by as much as 20 per cent.

Last month, the Kyero Spanish house price index revealed massive price falls across the country, with the average value of a two-bed home in Mallorca falling €33,000 to €292,000 in the past four months.

Similar slumps have been logged in areas from Gran Canaria to Girona and Cadiz. Estate agents are now advertising "price-reduced" homes in almost every region.

The slowdown in the overseas property market comes at a time when Irish investors in properties promoted by Michael Lynn, the solicitor and property developer at the centre of an investigation by the Law Society, are already worried. Some of these investors have paid deposits on overseas property but have not yet secured the title.

"If you look at a typical two-bedroom apartment in the Costa del Sol, its paper value could be about €250,000," said Darren Costello, managing director of propertyinvestments.ie, a Dublin firm that offers advice on overseas property investment.

"But you'd be hard-pressed to find a buyer for €200,000."

Bulgaria has been touted as a investment "hotspot" by Irish property promoters. But new figures from investor.bg, reveal that apartment prices in Sunny Beach fell by 4 per cent in July alone.

Similar slumps have been experienced in Ahtopol, Prmorsko and SvetiVlass, as a massive oversupply of tourist apartments remains unsold.

Other hugely popular eastern European or Baltic markets have skidded to a halt, with dramatic price-falls in some countries. Latvia's bubble has well and truly burst, with the Latio Investment agency revealing falls of almost 11 per cent since April.

Estonia and Lithuania have also experienced decreasing property prices. The central statistics office in Poland has also reported values slipping in the second quarter of the year. In Budapest, Hungary, some 3 per cent has been snipped off prices of new apartments, according to the Global Property Guide.

One Irish investor is facing losses of about €30,000 after buying a Budapest property for about €79,855 three years ago. The investor, who is now trying to sell his property, was advised that the best sale price he can secure now is €69,000. By the time he sells the apartment, he will have paid about €20,000 in fees, taxes and renovations.

The tide is going out and there are now lots of naked swimmers scrambling around the beach looking for their swimsuits and shorts. The problem is that they have already pawned them away for the chance to take a dip in the deep blue sea. They will now have to go about naked without a shred of clothing to cover up their nakedness and there is worse to come: A snowstorm is on the way the likes of which has never been seen before. Everything that could go wrong is about to go wrong and there will be nowhere to run nor hide. Yes, grown men will weep like babies and curse their leaders and all those in the media who have deceived them with feel good stories of a world where the sun never sets. Oh how could we have been so stupid they will say, as they cry for help to the implacable and cynical financiers who led them to dark pits of despair like the Pied piper of Hamelin. Only a few men and women, readers of this blog are left standing at the edge of the precipice staring down at the heap of white sun bleached bones down below. Be afraid, be very afraid.

The tide is going out and there are now lots of naked swimmers scrambling around the beach looking for their swimsuits and shorts. The problem is that they have already pawned them away for the chance to take a dip in the deep blue sea..... Only a few men and women, readers of this blog are left standing at the edge of the precipice staring down at the heap of white sun bleached bones down below. Be afraid, be very afraid.

I sure don't wanna be dem damn bleached bones looking up at the HP'ers.

You should sign your posts. That was terrific. I am going to take cover now.AA

I wonder what will happen when the Irish and the Brits lose all the money they sunk into their vacation homes? Do you suppose a certain number of them will be forced to down-size their lifestyles and sell their overpriced 'flats' in crash-proof Londy?

But this proves the point. Schiff is wrong. This thing is global. Investing in Euros is a sucker's bet. Yhey're toast too. The EU bank will follow your buddy Ben. I really want to hear your comment on this one.

i'm watching things in ireland melt down with glee. 3 months ago i brough t up the topic at a dinner with my "educated" coworkers. everyone thought i was retarded for saying it would crash.

you would not believe how many people i have met here who, when asked what it is they do, have responded with "i'm in property". translation- i am a buy to let slumlord about to get my eyes wiped.

my neighbor tried to sell his house for 1.5m euro. (I rent a similar one for 2,000 a month). I know someone who offered 1.1m euro. the neighbor is now renting it out to "see what will happen". sure he is.

like anyone else, the irish got greedy. they got used to returns of 100% and would not settle to buy a condo to flip it and make 40%...they wanted to invest 50 grand to make 200 grand.

The Irish bubble has been inflating since the mid 1990s. A lot of people made a killing on property - not just notional, but banked - especially farmers selling land zoned for development. Many will be badly burned, but others were canny with their windfalls.

The effect on the euro of deflating bubbles in Spain and Ireland will be interesting. The core economy, Germany, has no problem with HPI; and France doesn't seem to have caught such a bad dose of it, except from British expats buying holiday homes.

That's the sound of the worldwide housing bubble deflating and I'm coming for you next.

I would have got to you sooner but you're kind of wet and slippery. I did send notices earlier but half of the shipment was stolen and used for rolling paper. The other half was distributed no problem, but I didn't realize there were so many of you who didn't understand English.

Let me put it more plainly then: House price go up very big then go boom...you very sad. Get it?

I had to put down 60% to buy a flat in Hungary (5 years ago before the joined the EU) Seems to me that this lack of leverage will mean LESS catastrophe as I think people with this type of equity will be less likely to walk away. Even without appreciation this flat has turned out to be a good investment considering the increased strength of the Euro to the Dollar.

It's now 1 year since this blog has been started and the real crash has not even yet happened, but it's coming and it's coming hard. America has already disclosed how bad the situation is with investers and the US banks, but Europe continues to hide the real facts from its citizens and the world, fearing a meltdown of their own and one might speculate that it is even worse than the US position. The mighty over-inflated Euro will crash significantly against the dollar and if you think Euro real estate has slipped back, just wait and see whats coming. There will be financial blood in the streets, as greedy (and stupid) Euro-investors see their "Hot Spot" purchases in Greece and Bugaria literally bankrupt them. Maybe some of the poor souls who actually live in these countries will be able to afford buying one, instead of seeing fat British and German tourist types rents these off of foreign owners. I hope so. either way Europe, the US knows it's troubles, but you poor fools seen to be clueless as to what the Euro situation is. Get out now, IF YOU CAN.